Job Order Costing:
Job order costing is a cost allocation method used by companies that
produce customized or unique products or services. It is suitable for
industries where each unit of production or job is distinct and produced to
customer specifications. Here are two examples of companies that use job
Custom Furniture Manufacturer:
A custom furniture manufacturer
produces unique pieces of furniture tailored to each customer's preferences.
Each order is different, and materials and labor are specifically allocated to
individual jobs, making job order costing an appropriate cost-tracking
Another example is a printing company that produces
customized brochures, wedding invitations, or marketing materials. Each
printing job varies in terms of design, quantity, and paper quality, making job
order costing essential for accurate cost determination.
Process costing is employed by companies that manufacture homogeneous
products in large quantities, often using continuous or repetitive processes. It
is suitable for industries where products are similar and it's challenging to
trace costs to individual units (Heisinger, K., & Hoyle, J. (2012). Here are two
examples of companies that use process costing:
Companies that produce beverages like soda or
bottled water typically use process costing. The production process is
continuous, and the finished products are virtually identical. Costs are spread
across the entire production process, making it difficult to assign specific
costs to individual bottles.
Oil refineries process crude oil into various petroleum products
like gasoline, diesel, and jet fuel. The refining process is continuous, and the
end products are standardized. Process costing is used to allocate costs to
the various petroleum products.
Similarities between Job Order Costing and Process Costing:
Both methods aim to accumulate and allocate